Cinemark, Cineplex Merge Ops

Cineplex Odeon Corp. is merging with Cinemark USA in a $350 million deal, the exhibitors confirmed March 2, forming a theater giant with a healthier financial profile and ability to expand than just Cineplex had alone.

Cineplex Intl., as the new company will be called, will be the biggest exhibition company in the world, with more than 2,800 screens, or about 11% of the North American market, and almost 20% of the domestic box office, Cineplex Odeon CEO Allen Karp said at a press conference March 2. The previous No. 1 exhib, United Artists Theaters, has 2,400 screens.

Cineplex Odeon is paying for privately owned Cinemark by issuing stock worth $286 million at its valuation (but valued at only $234 million at current market prices), $50 million in cash and another $15 million in a note. MCA and Charles Bronfman Trust, the two biggest shareholders in Cineplex Odeon, will contribute $20 mil lion, and the other $30 million will be borrowed.

The stock issue will make Cinemark’s founder and major shareholder, Lee Roy Mitchell, the biggest shareholder in the combined company, with 29.7% of the combined company. But Mitchell agreed to cap his voting rights at 23.2%, in line with MCA’s diluted shareholding.

“MCA considers itself to be Mitchell’s partner in this transaction, which is reflected in the equality of the voting rights,” said MCA motion picture group chairman Tom Pollock, who called the merger a “home run.”

Wall Street also greeted the merger warmly, pushing up Cineplex’s stock by nearly 30% – 50¢ – to $2.25 a share.

Mitchell will be chairman of the new company, continuing to supervise the expansion and building program from Dallas. The two companies have plans for 900 new screens in the next three years in the U.S., Canada, Mexico and other Latin American venues.

Cinemark has aggressively expanded into Mexico, and Karp said the merged company would continue to target Mexico as well as Chile.

Karp hinted that one area where Cineplex Intl. hoped to cut costs was in lower prices from the studios. “We will be able to offer them more and that will be to their advantage. I expect if that happens they will take a little bit less,” he said.

He added that this was “obviously part of our ongoing discussion and negotiation with the studios” and said all the studio chiefs were supportive when he contacted them. MCA’s Pollock declined to comment on this aspect of the deal.

Cowen analyst Harold Vogel said that in addition to having “more clout with the studios and distributors,” the merged company would be able to get better prices from the concession suppliers. “For a lot of reasons, the bigger the chain is, the better off the company,” Vogel added. Cineplex execs would not put a figure on the cost savings that could come from the merger, and Karp downplayed the likelihood of staff cuts, pointing to the planned growth in screens.

Leonard Klady in Los Angeles contributed to this report.

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